Is there an economic case for firms to invest more in certifications, like the certified financial planner designation?
A new report, “Building a Wealth Management Practice: Measuring CFP Professionals' Contribution,” compares CFP professionals and practices to financial advisors who do not have CFP certification and finds that CFP professionals fare better in a number of ways.
There are more than 74,000 CFP professionals today, according to Joseph V. Maugeri, managing director of corporate relations for the Certified Financial Planner Board of Standards.
The study, commissioned by the CFP Board and conducted by Aite Group, attempts to identify the contribution of CFP professionals to a practice’s revenue.
Looking at solo practices, the study finds that CFP professional practices generate 40% more revenue based on average practice revenue and almost 70% more revenue per client.
The median revenue of a solo practice led by an advisor who is not a CFP professional is $250,000, while the median revenue of solo CFP professional practices is $350,000, according to the study.
“I think that makes a strong case for firms that the CFP is a great investment and will allow their advisors to be more successful,” Maugeri told ThinkAdvisor via phone.
The study also finds that CFP professional practices are more successful at attracting high-net-worth and ultra-high net worth clients. The share of HNW and UHNW clients at CFP professional practices is 53% higher than at other practices, according to the study.
“That’s significant,” Maugeri said. “It shows that for more complex situations, CFP professionals are well equipped to handle HNW and UHNW because of their training and professional development. And it’s recognized by the industry and the public.”
Alois Pirker, co-author of the report, makes the distinction that it’s not so much a CFP designation that matters as it is the qualities that the CFP professional practices, such as values-driven advice.
The CFP certification requires financial advisors to complete an education curriculum – which includes a financial plan development course registered with the CFP Board, as well as fitness standards and experience requirements – lasting nine to 18 months and culminating in a six-hour exam.
“The designation is a visible part of it. It goes on the business card, but I think it’s that confidence and level of saying ‘I structured my practice around a certain process,’” Pirker told ThinkAdvisor. “I think that makes a difference in terms of how that client then views the advisor.”
CFP professionals themselves admit the importance of financial planning to their practices, according to the report’s findings.
According to the study, 41% of advisors who are members of CFP professional practices state that financial planning is more important than investment management, while only 23% of other advisors say the same.
According to Maugeri, CFP professionals focus more on advice that’s outcome-oriented and holistic.
“It’s less about portfolio construction and it’s more around ‘Will I be able to retire? Will I be able pass on a business to my children? Will I be able to take care of my family if something happens? What’s the best allocation for my money for retirement?’” he told ThinkAdvisor. “The questions are more outcome based, and CFP professionals take into account all the areas of a client’s financial life.”
In October, Aite Group conducted an online survey commissioned of 403 U.S. financial advisors that includes 146 CFP professionals. In addition to CFP professionals, the sample includes 306 advisors representing practices that have at least one CFP professional.
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